The Revocable Living Trust – Is It Right For You?

THE COUNSELOR

Volume 6 • Issue 5 • May 2016

The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. This month’s issue will discuss a common estate planning tool, the revocable living trust. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.

The most common type of trust is likely the “revocable living trust” (RLT). If you know of a friend or relative that has a trust, it is probably an RLT. You may have asked yourself, if so many people are using an RLT for their estate planning, is it right for me? First, it is important to understand what an RLT is. An RLT is an agreement, or contract, where you establish a set of rules to:

Control your property while you are alive and well;

Take care of yourself and loved ones if you become disabled;

Give what you want to who you want, when you want and the way you want; and

Do so with the lowest possible amount of professional fees and court costs.

An RLT is really just a carrying case with a set of instructions regarding your property. As the name suggests, the revocable living trust is fully revocable and amendable at the request of the individual who created the trust – often referred to as the grantor or trustor. In an RLT, the grantor generally serves as the trustee and beneficiary in addition to creating the trust. Assets that are transferred (or “funded”) into an RLT can be withdrawn at any time.

Benefits of the Revocable Living Trust

One of the oft cited benefits of an RLT is probate avoidance. Probate is the court process where the assets of a deceased individual who either had no will or only had a will are administered and ultimately distributed to the heirs or beneficiaries. While the cost of probate can vary from state to state, the requirement to involve the courts will of necessity increase the cost of administration. Probate is also a public process where anyone can review the contents of your will and learn about your assets and how you distributed those assets at your death. In contrast, a properly funded trust is a private document and court involvement is not necessary absent a dispute. If an individual owns property in multiple states, use of an RLT can avoid the necessity of multiple probates (or other proceedings) in the different states where property is held.

An underestimated benefit of using an RLT is planning for the event of your incapacity. With your assets held in a revocable living trust, the need for a guardianship and/or conservatorship proceeding resulting from your incompetency may be avoided. Other benefits include:

Protection of the inheritance for minor children;

Tax planning;

Beneficiary and ownership coordination;

Re-marriage and inheritance protection; and

Special needs planning for disabled beneficiaries.

Disadvantages of the Revocable Living Trust

There are really no major disadvantages to the RLT. One possible disadvantage is the upfront investment in legal fees as compared to a will. However, when adding the cost of the will to the future fees that could be incurred in a probate, the revocable living trust can quickly become more cost effective. Another disadvantage is the mistaken belief by many that RLTs provide asset protection. While trusts can be created to provide asset protection, RLTs are intended for estate planning and, at least initially, do not provide asset protection. Probably the biggest disadvantage to creating an RLT, is the ongoing need to make sure assets are properly owned by the trust. If a trust is not funded, probate may be necessary even with a trust in place.

Conclusion

While the use of an RLT as part of your estate plan does require some additional effort to ensure assets are properly owned by the trust, the benefits of trusts greatly outweigh any perceived disadvantage. Is an RLT for everyone, absolutely not. There is no such thing as one size fits all planning. But, the advantages to you should be explored with a qualified attorney who can help you build an estate plan that will work for you.

This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.